McConnell-Reid Debt Deal Close To Being Scrapped, Larger Package Reportedly In Reach

WASHINGTON -- The fail-safe debt ceiling plan crafted by the Senate's top two leaders, Harry Reid (D-Nev.) and Mitch McConnell (R-Ky.), is close to being put on political life support, those familiar with negotiations tell The Huffington Post, as lawmakers coalesce around a major deal instead.

Sources on the Hill Thursday morning expressed a newfound -- at times defeatist -- sense of worry about the political prospects of the proposal, which would cut roughly $1.5 trillion over ten years while granting authority to the president to suggest (but not sign off on) future spending cuts as a condition of raising the debt ceiling now. House Republicans have told leadership that they are sour on the idea, with more than 90 members pledging to oppose it. Another factor contributing toward its demise, however, has been the Obama administration's decision to continue to push for a bigger deficit-reduction package, which has led many lawmakers to consider the McConnell-Reid option both insufficient and potentially unnecessary.

"I think it is certainly an uphill battle now," a Hill Democrat said of the McConnell-Reid plan.

"We did not leave the [White House] meeting yesterday feeling like there was a clear path moving forward," said another Democratic congressional aide. "People are being drawn towards other solutions at the moment. But they are mirages."

Or perhaps not. On Thursday afternoon, a report surfaced that Speaker John Boehner (R-Ohio)'s office and the Obama administration were close to a major deal to resolve the debt ceiling standoff.

The president and his team had separate meetings on Wednesday evening with congressional Democratic and Republican leadership to chart out a way forward on the debt ceiling deal. The administration pressed, as it has in the past, for lawmakers to coalesce around as big a deficit reduction package as politically possible. There are conflicting reports as to what was discussed. But according to multiple sources from both parties, the administration signaled a willingness to tackle a bigger plan than even that proposed by the bipartisan Gang of Six.

What such a deal would look like is difficult to pin down in detail, as much of the Gang of Six proposal requires congressional committees to write in the specific cuts to programs under their purview. But it would involve steep reductions in health care spending -- both in Medicare and Medicaid. In previous debt ceiling negotiations, the administration has supported further means-testing elements of Medicare as well as raising the eligibility age of the program. Cuts to Medicare suppliers would also be part of a larger package, as would adjusting the payment structure of Social Security so that a lower level of benefits was paid out over time.

The White House declined to comment on any aspect of the meetings and denied reports of a deal. Michael Steel, a spokesman for Boehner, said only the following: “While we are keeping the lines of communication open, there is no ‘deal’ and no progress to report. We are still focused on the ‘Cut, Cap, and Balance’ bill that passed the House with bipartisan support, and hope the Senate will take it up as soon as possible.”

As an indication of where Wednesday's conversation went, a Republican source told The Huffington Post that Boehner did the majority of the talking while House Majority Leader Eric Cantor (R-Va.) played a supportive role. Boehner has been more open to a big deal than Cantor, whose pushback on the president's proposal has caused fireworks during previous White House meetings.

For negotiators, the sticking point, in the end, remains what type of revenue component will come with any arrangement. House Republicans have insisted that tax increases should be completely off the table. The Gang of Six skirts around that requirement by attaching revenue increases to the elimination of the Alternative Minimum Tax, which constitutes a $1.7 trillion tax revenue reduction over the course of ten years.

The White House has laid out an alternative suggestion during past negotiations: Lawmakers would be required to find $800 billion in additional revenues over the next decade. If they could not find an agreement, then the Bush-era tax cuts for the high-end earners will expire.

A top Republican aide said that such an arrangement remained problematic for the party, even with anti-tax zealots like Grover Norquist acknowledging on Thursday that allowing the Bush rates to expire would not technically count as a tax increase. Democrats, the source said, would be compelled to simply "run out the clock" -- as in, oppose any deal with confidence that the Bush rates on the rich would rise regardless.

In order to try and find agreement on this front, a slight reversal to the administration's original plan has been floated, according to a Democratic official. Rather than write the decoupling of the Bush tax cuts into the debt ceiling legislation, negotiators will simply leave the rates as is.

Lawmakers would still be tasked with finding $800 billion or so in revenues to supplement a deficit-reduction deal. But if that $800 billion didn't materialize, they would no longer have the fallback option of seeing the high-end rates go back to pre-Bush levels when they are set to expire at the end of 2012. Instead, they would have to relive the dramatic legislative showdown that happened in late 2010, when the president and Democrats tried, unsuccessfully, to decouple the top rates from the middle and lower income rates.